Having ostensibly run out of measures to defend the flagging rupee,the RBI today resorted to releasing the quarterly CAD estimates a day ahead of schedule. The central bank usually publishes the CAD figures the broadest measure of trade tracking goods,services and investment income on the last working day of every quarter. The RBIs move to release the sharply improved numbers the fourth quarter deficit for 2012-13 at 3.6 per cent of GDP,down from the frightening 6.7 per cent in the previous quarter ahead of schedule,did achieve the desired result of calming nerves after the rupee had slumped to an all-time low on Wednesday. The data issued early on Thursday,before trading hours,sparked a rally,with the rupee finally ending up 53 paise from yesterdays close. Its a divided house,though,on where the CAD is headed from here on. While the turnaround in the fourth quarter hinged largely on the improvement in the merchandise trade deficit from $58 billion to $46 billion and invisible inflows demonstrating a strong uptick that is generally seen in the January-March period,a reprieve on both these fronts is unlikely in the coming quarters.
While a section of analysts see the fourth quarter number as just a blip,with the vastly weakened position of the rupee expected to trigger a further widening of the deficit in the coming quarters,the counter view is that lower gold imports and subdued commodity prices could more than offset the impact of the rupee depreciation. But even if the latter view holds good,financing the CAD this fiscal will still be a challenge as slowing capital inflows could offset any benefit from a lower CAD,which will keep up the pressure on the rupee,threatening to stoke import costs and reignite price pressures. So,despite the RBIs ahead-of-schedule good news on the CAD,the worries continue to fester.
Anil is a senior editor based in New Delhi.